Once Wall Street’s Hot Crypto Play Bakkt Has Chilled

Shares of Bakkt Holdings Inc. are down 80% since October.

Bakkt is set to report its first quarter results as an independent public company on Thursday. This number will shed light on how well Bakkt has made progress towards meeting its ambitious goals of revenue and user growth. It set targets in January 2021, when NYSE parent Intercontinental Exchange Inc. unveiled plans to take Bakkt public by merging with a special purpose acquisition firm.

Bakkt has changed its business model several times since its inception in 2018 and has had four CEOs over the years. It initially focused on running a platform for bitcoin futures trading. It now focuses on providing technology to banks, credit-card issuers and companies with customer-loyalty programs, such as hotel and restaurant chains. Bakkt’s technology lets such companies integrate crypto, points and gift cards in a variety of ways.

For example, banks can use Bakkt to allow their customers to invest in bitcoin and ether. Guests at the hotel chain can use Bakkt to swap points for cash or crypto. Bakkt can also be used to make payments using digital currencies.

Skeptics question whether Bakkt has a path to profitability. The company has said that it expects to post a pretax loss of $150 million to $155 million for the fourth quarter of 2021, mainly due to noncash accounting charges. This comes after a loss of $28.8 million in the third quarter.

“Bakkt is losing millions of dollars every quarter, and I don’t know how they’ll make that money,” said David Trainor, chief executive of independent investment research firm New Constructs LLC. “They’re simply leaving buzzwords in order to appeal to unsuspecting investors.”

A Bakkt spokesperson said the company’s losses reflect aggressive investments to grow its business.

When ICE founded Bakkt, the venture was an unusual foray into crypto by a reputable financial firm. ICE’s pedigree as owner of the NYSE and global futures exchanges and clearinghouses brought immediate credibility to the enterprise and attracted widespread attention.

Alpharetta, Ga.-based Bakkt was briefly an investor darling. Its shares soared in late October after Bakkt unveiled a partnership with Mastercard Inc., which could result in debit or credit cards that allow people to pay and earn rewards in bitcoin. Following a surge of mentions of Bakkt on social media—often a sign of overwhelming interest from individual investors—the stock peaked at $42.52 on October 29, valuing Bakkt at roughly $11 billion.

Since then Bakkt has been a nose bleeder. The stock closed Tuesday at $8.40 per share, giving the company a market capitalization of $2.2 billion. Bakkt’s stock is down about 10% from the premerger price of shares of VPC Impact Acquisition Holdings, the SPAC that Bakkt took public in a deal that closed in mid-October.

Still, ICE came out as the winner from the SPAC deal. The Atlanta-based exchange operator, which still owns a majority of Bakkt, made $1.4 billion in profit from exiting the venture.

Bakkt is one of several money-losing companies that went public through SPAC deals during the past two years, then fell into a widespread sell-off that was particularly brutal for valued tech startups. SPACs are publicly traded shells that seek to merge with private firms to take them public, in alternative to a standard initial public offering.

In an interview, Bakkt CEO Gavin Michael said that the company is well positioned for the long term.

“We are just getting started,” said Mr. Michael, a veteran banking executive who became Bakkt’s CEO in January 2021. We have great partners. We have an excellent team. We have a strategy that is very, very direct. is strong.”

Companies that partner with Bakkt include Google, Starbucks Corp., United Airlines Holdings Inc. and Wells Fargo & Co.

Bakkt had bigger goals when ICE announced the venture would go public. In its January 2021 presentation on its SPAC deal, Bakkt projected it to have nine million users by the end of 2021. By 2025, the company projected 31 million users and revenue of $6.6 billion.

Estimates assumed the SPAC deal would close in early 2021. It took another nine months to shut down, delaying Bakkt’s development efforts. In November, Bakkt said it had more than 1.7 million trading accounts.

Third-party data shows that Bakkt’s smartphone app – once considered a key part of the company’s strategy – is losing users. According to data tracker Apptopia, the app had around 157,000 active users in January, down from 353,000 in May. Bakkt’s strategy lately has focused less on apps and more on attracting users through partnerships.

The project Bakkt initially focused on bitcoin futures has largely failed. Bloomberg data shows trading volumes on the main Bakkt bitcoin futures contract fell below $10 million in a single day from a peak of over $181 million in March 2021.

“We are taking a patient approach to building our futures and options markets and believe that as institutions become comfortable interacting with physical bitcoin, our market will grow as well,” a Bakkt spokesperson said.

This story has been published without modification to the text from a wire agency feed